Birchtree
Well-known member
$50 round trip plus expenses
Here's a little something from Jonathan Clements of TWSJ - no date.
High trading costs mean that ETFs are not always the cheaper option.
They aren't as cheap as they look. Exchange-traded index funds are possibly the fund industry's hottest product, with assets now at $289 billion, up 183% since year-end 2002, easily outpacing the 90% growth in conventional index-mutual funds. Many indexing afficionados are convinced that exchange-traded funds, or ETFs are a better bet than regular index funds. But I'm not biting. The fact is, even low-cost ETFs, which trade throughout the day like stocks, can end up being surprisingly expensive - and many of these funds aren't low cost to begin with.
Robo,
You'll just have to test the waters - you have more experience with mutual funds than I do. But read on for some fun...
To be sure, exchange traded funds frequently have lower annual expenses than regular index funds that invest in the same sector. But this is no great surprise. Regular funds bear the cost of maintaining shareholder accounts, including sending out statements and paying telephone-service representatives. The funds recoup these costs through the expense ratios they charge.
By contrast, with an exchange-traded fund, you pay separately for these servicing costs. When you buy or sell an ETF, you don't go directly to the fund company, as you would with a mutual fund. Instead, you have to trade the stock-market-listed shares, and that means paying trading costs. Is it worth paying these costs? It all depends on how much you invest, how long you plan to stay put, and how much lower the ETF's expenses are.
Suppose you have $10.000 in your individual retirement account or a regular taxable account, and yoiu want to stash it in an index fund that tracks small-company value stocks. You could buy Vanguard Small-Cap Value Index, a regular index-mutual fund that levies 0.23% a year. Alternatively, you could purchase the ETF version - Vanguard Small-Cap Valuw VIPERS - which charges 0.12%. The VIPERS lower expenses mean an $11 a year savings on a $10,000 investment.
Let's presume you pay a $20 brokerage commission to buy the VIPERS and $20 to sell. You would also lose a little money to the trading spread, the slight difference between the ETF's buy and sell price. Such price differences reflect the profit earned by market makers, the firms that handle stock-market buy and sell orders.
According to Vanguard Group, the spread on the VIPERS has lately been 0.13%, equal to $13 on a $10,000 investment. Add that to the commission costs and your total trading tab would be $53. Divide that $53 by the VIPERs $11 annual cost advantage, and you find the exchange-traded fund would be a better deal if you hung on for five years.
Morningstar Inc. tracks 190 ETFs - and 58 have net annual expenses of 0.6% or more. True, 0.6% is lower than the expenses on many actively managed mutual funds. But remember, with ETFs, you will also pay trading costs - and all you're likely to collect is the performance of the underlying index, minus whatever costs you incur. The higher the fund's annual expenses and the more you incur in trading costs, the further you will lag behind the benchmark index.
In 2004, Vanguard introduced 11 ETFs that track sectors like financials and consumer staples. One fund charges a tiny 0.12% and the rest a modest 0.26%. In many of these sectors, there's no index-mutual fund alternative, except for some Vanguard funds with $100,000 minimums.
So Robo, to answer your original question I'm clueless. The only mutual funds I own I own via retirement plans, otherwise I'm strictly a stock owner. Currently I don't own any Roth or regular IRAs preferring to stay with my own home built mutual fund. When you buy stocks in a Roth the dividends are generally reinvested for free every 3 months. You actually have much more flexibility with individual stocks and you can be selective which ones to take profits on. Lately I've been loosing stocks to take overs - makes 4 this year - soon I won't have an account. Already got my eye on some replacements.
Dennis
Here's a little something from Jonathan Clements of TWSJ - no date.
High trading costs mean that ETFs are not always the cheaper option.
They aren't as cheap as they look. Exchange-traded index funds are possibly the fund industry's hottest product, with assets now at $289 billion, up 183% since year-end 2002, easily outpacing the 90% growth in conventional index-mutual funds. Many indexing afficionados are convinced that exchange-traded funds, or ETFs are a better bet than regular index funds. But I'm not biting. The fact is, even low-cost ETFs, which trade throughout the day like stocks, can end up being surprisingly expensive - and many of these funds aren't low cost to begin with.
Robo,
You'll just have to test the waters - you have more experience with mutual funds than I do. But read on for some fun...
To be sure, exchange traded funds frequently have lower annual expenses than regular index funds that invest in the same sector. But this is no great surprise. Regular funds bear the cost of maintaining shareholder accounts, including sending out statements and paying telephone-service representatives. The funds recoup these costs through the expense ratios they charge.
By contrast, with an exchange-traded fund, you pay separately for these servicing costs. When you buy or sell an ETF, you don't go directly to the fund company, as you would with a mutual fund. Instead, you have to trade the stock-market-listed shares, and that means paying trading costs. Is it worth paying these costs? It all depends on how much you invest, how long you plan to stay put, and how much lower the ETF's expenses are.
Suppose you have $10.000 in your individual retirement account or a regular taxable account, and yoiu want to stash it in an index fund that tracks small-company value stocks. You could buy Vanguard Small-Cap Value Index, a regular index-mutual fund that levies 0.23% a year. Alternatively, you could purchase the ETF version - Vanguard Small-Cap Valuw VIPERS - which charges 0.12%. The VIPERS lower expenses mean an $11 a year savings on a $10,000 investment.
Let's presume you pay a $20 brokerage commission to buy the VIPERS and $20 to sell. You would also lose a little money to the trading spread, the slight difference between the ETF's buy and sell price. Such price differences reflect the profit earned by market makers, the firms that handle stock-market buy and sell orders.
According to Vanguard Group, the spread on the VIPERS has lately been 0.13%, equal to $13 on a $10,000 investment. Add that to the commission costs and your total trading tab would be $53. Divide that $53 by the VIPERs $11 annual cost advantage, and you find the exchange-traded fund would be a better deal if you hung on for five years.
Morningstar Inc. tracks 190 ETFs - and 58 have net annual expenses of 0.6% or more. True, 0.6% is lower than the expenses on many actively managed mutual funds. But remember, with ETFs, you will also pay trading costs - and all you're likely to collect is the performance of the underlying index, minus whatever costs you incur. The higher the fund's annual expenses and the more you incur in trading costs, the further you will lag behind the benchmark index.
In 2004, Vanguard introduced 11 ETFs that track sectors like financials and consumer staples. One fund charges a tiny 0.12% and the rest a modest 0.26%. In many of these sectors, there's no index-mutual fund alternative, except for some Vanguard funds with $100,000 minimums.
So Robo, to answer your original question I'm clueless. The only mutual funds I own I own via retirement plans, otherwise I'm strictly a stock owner. Currently I don't own any Roth or regular IRAs preferring to stay with my own home built mutual fund. When you buy stocks in a Roth the dividends are generally reinvested for free every 3 months. You actually have much more flexibility with individual stocks and you can be selective which ones to take profits on. Lately I've been loosing stocks to take overs - makes 4 this year - soon I won't have an account. Already got my eye on some replacements.
Dennis
..........Spaf
............Spaf
